39 awarded RM12.8mil over non-delivery of preferred stock, fixed dividends

The Kuala Lumpur High Court said the agreements with Kaito Gin Holdings Bhd were valid share subscription contracts and not disguised loan arrangements. (Reuters pic)

KUALA LUMPUR: The High Court has awarded 39 investors more than RM12.8 million in damages after finding that an investment holding company had breached its agreements to grant redeemable preference shares (RPS) and pay fixed dividends.

Justice Leong Wai Hong said Kaito Gin Holdings Bhd could not rely on provisions of the Companies Act 2016 to avoid its contractual obligations after accepting RM10.57 million from the investors under share subscription agreements.

“The court can hold the company to its obligation and grant a remedy to the subscribers in the form of damages,” he said in his 13-page grounds of judgment.

The investors subscribed to the RPS in 2019 under a scheme to raise funds for a proposed property development.

Under the agreements, Kaito Gin undertook to redeem the shares when they matured and to pay a fixed cumulative dividend of 7% a year.

Although the company paid the first dividend in April 2019, it stopped making further payments. It also failed to redeem the shares after extending the maturity date to Jan 31, 2023, prompting the investors to sue.

Kaito Gin argued that redeeming the shares and paying dividends would breach Sections 72 and 131 of the Companies Act because it lacked sufficient profits and capital.

It also claimed that the share subscription agreements were, in reality, unenforceable moneylending transactions.

Leong rejected both arguments, holding that the agreements were valid share subscription contracts and not disguised loan arrangements.

“The mere fact that the RPS carries redemption features and cumulative dividend rights does not convert a share subscription into a loan,” he said.

The judge also found that the company could not rely on statutory restrictions to retain the investors’ money without honouring its contractual promises, adding that this would amount to unjust enrichment.

He further dismissed the company’s argument that only the security trustee could declare an event of default before legal action could be taken, saying the point had not been pleaded and, in any event, the investors had a personal contractual right to sue.

The court ordered Kaito Gin to pay RM10.57 million in damages representing the redemption amount and RM2.22 million in unpaid dividends accrued between February 2020 and January 2023.

The company was also ordered to pay interest at 5% a year from the date the writ was filed until full settlement, as well as RM100,000 in costs.

Richard Tee and Caryn Shua represented the plaintiffs while Mahathir Abdullah and Goh Chin How appeared for the company.